Federal Government Approves Tennessee’s Medicaid Proposal, Swapping a Block Grant for an Aggregate Cap


The federal government approved Tennessee’s proposed Medicaid aggregate cap, granting a lump sum for a self-imposed, fixed budget. The ten-year agreement, referred to as “TennCare III,” is the first of its kind nationwide. It also allows for the state to reserve any unused funds and apply them to other government programs, with up to 55 percent of those savings potentially matched by additional federal funds for state health programs.

The Centers for Medicare and Medicaid Services (CMS) described the measure as an “innovative financing approach.” Unlike what various reports claimed, federal officials explicitly stated that this agreement wasn’t a block grant. This agreement allows the state government to be flexible with its spending cap under certain circumstances – like last year’s pandemic and related unemployment crisis.

“This aggregate cap approach is not a ‘block grant’ but rather, gives the state flexibility in operating its program under a defined cap by putting expenditures at risk based on both cost and population growth and is consistent with existing CMS policy outlined in the ‘Budget Neutrality Policies for Section 115(a) Medicaid Demonstration Projects’ State Medicaid Director (SMDL),” read the CMS letter. “The administrative flexibility afforded under this demonstration will allow the state to appropriately manage costs within a fixed budget.”

Federal officials added that although TennCare III wasn’t a Healthy Adult Opportunity (HAO) initiative, it does offer similar flexibilities to the state while imposing a funding ceiling and financial risk.

“CMS recognizes that states, as administrators of their Medicaid programs, are in the best position to assess the needs of their respective Medicaid-eligible populations and to drive reforms that result in better health outcomes,” stated the CMS approval letter. “Tennessee’s demonstration, TennCare III, builds on the state’s past successes of managing their Medicaid program efficiently, by granting the state additional administrative flexibility to implement its program in exchange for taking on some financial risk through an aggregate cap financing model based on the state’s recent historical costs and enrollment experience.”

Governor Bill Lee issued a similar press release of praise for the decision following the CMS announcement.

“Today’s agreement represents a continuation of Tennessee’s commitment to innovate, lead and improve,” stated Lee. “We have sought to fundamentally change an outdated and ineffective Medicaid financing system that incentivizes states to spend more taxpayer dollars rather than rewarding states for value, quality and efficiency. Our approved plan will create an unprecedented opportunity for Tennessee to be rewarded for its successful administration of TennCare and further improve the health of TennCare members and Tennessee communities with that reward.”

President-elect Joe Biden’s incoming cabinet members may reverse the change, as hinted by Biden’s express goals to expand healthcare accessibility. However, Biden has yet to issue any statement on the matter.

The Tennessee Star reached out to the State Senate Commerce and Labor Committee Chairman, Paul Bailey (R-Sparta), to inquire about Biden’s response to the changes. Their spokespersons didn’t respond with comment by press time.

Bailey was one of the main sponsors for the waiver. He commended CMS for granting the state some regulatory flexibility.

Other states have attempted to experiment with the flexibility of Medicaid funding. Some imposed work requirements to qualify, all of which were ended in several years either by lawmakers or judges after thousands of individuals lost coverage. The Supreme Court has agreed to review the ability for two states to impose the requirement: Arkansas and New Hampshire.

Tennessee’s amendment will now be placed before its General Assembly for a final vote.

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Corinne Murdock is a reporter at The Tennessee Star and the Star News Network. Follow her latest on Twitter, or email tips to [email protected].
Photo “Tennessee Capitol” by FaceMePls. CC BY 2.0. 





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One Thought to “Federal Government Approves Tennessee’s Medicaid Proposal, Swapping a Block Grant for an Aggregate Cap”

  1. 83ragtop50

    So tired of welfare being glorified.